QUIZ 2

1, Given free trade, small nations tend to benefit the most from trade
because they
are more productive than their large trading partners.
are less productive than their large trading partners.
have demand preferences and income levels lower than their large trading partners.
enjoy terms of trade lying near the opportunity costs of their large trading partners.

2, The so-called ______ shows the amount of one product that a nation
must sacrifice in order to obtain one more unit of the second product.
autarkic cost
marginal rate of transformation
technology cost
accounting cost

3, Outsourcing (offshoring)
harms the economy’s domestic sectors.
applies only to manufacturing industries instead of service industries.
is the transfer of work previously done by domestic workers to workers located in foreign
countries.
refers to the transfer of money capital from domestic banks to foreign banks

4, Unlike Adam Smith, David Ricardo's trading principle emphasizes the

demand side of the market.
supply side of the market.
role of comparative costs.
role of absolute costs.

5, According to Ricardo, a country will have a comparative advantage in the

product in which its
labor productivity is relatively low.
labor productivity is relatively high.
labor mobility is relatively low.
labor mobility is relatively high.

6, Commodity terms of trade measures

the rate at which exports exchange for imports.
the influence trade has on productivity levels.
the effect on income of the trading nation.
the improvement in a nation's welfare.

7, Modern trade theory contends that the pattern of world trade is governed
by
mercantilism.
supply conditions only.
demand conditions only.
the ability to separate the production process into tasks that can be done in different locations.

8, The trading principle formulated by Adam Smith maintained that

international prices are determined from the demand side of the market.
differences in resource endowments determine comparative advantage.
differences in income levels govern world trade patterns.
absolute cost differences determine the immediate basis for trade

9, If Hong Kong and Taiwan had identical labor costs but were subject to
increasing costs of production,
trade would depend on differences in demand conditions.
trade would depend on economies of large-scale production.
trade would depend on the use of different currencies.
there would be no basis for gainful trade

10, The United States has an absolute disadvantage to Spain on wine

production. According to David Ricardo, specialization can be more efficient
only in the following circumstances:
Spain intentionally slows its production.
The United States grows its own grapes, thereby reducing transport costs.
In this case, specialization will not have an impact on either country.
Specialization can lead to more efficient allocation of resources with free trade.

11, A nation that gains from trade will find its consumption point being
located
inside its production possibilities frontier.
along its production possibilities frontier.
outside its production possibilities frontier.
below its production possibilities frontier.

12, All of the following may be exit barriers EXCEPT

employee health benefit costs.
treatment, storage, and disposal costs.
penalties for terminating contracts with raw material suppliers.
increasing opportunity cost of production.

13, Terms of trade is determined by the prices

received for all goods exported by the home country.
of primary products as opposed to manufactured products.
paid for all goods imported by the home country.
received for exports and paid for imports.
14, John Stuart Mill's theory of reciprocal demand best applies when
trading partners
are of equal size and importance in the market.
produce under increasing cost conditions.
partially specialize in the production of commodities.
have similar taste and preference levels.

QUIZ 3
1, Assume that Country A, in the absence of trade, finds itself relatively
abundant in labor and relatively scarce in land. The factor endowment
theory reasons that, with free trade, the internal distribution of national
income in Country A will change in favor of
labor.

land.

both labor and land.

neither labor nor land.

2, Which of the following suggests that by widening the market's size,

international trade can permit longer production runs for manufacturers,
which leads to increasing efficiency?
comparative cost theory
diseconomies of scale
absolute cost theory
economies of scale
3, According to the factor-endowment theory, countries with an abundance
of unskilled labor, like China, are likely to
export goods like aircraft and machinery.
have an economic advantage.
have higher labor costs.
export goods like textiles and toys.
4, In the United States, most low-skilled manufacturing jobs have been lost
due to
unfair tariffs.
immigrants.
international trade.
robots and other automation technology.

5, Which theory considers the income distribution effects of trade in the

short run?
specific-factors theory
Stolper–Samuelson theorem
product life cycle theory
factor-endowment theory

6, The simultaneous import and export of computers by Germany is an

example of
imperfect competition.
intra-industry trade.
inter-industry trade.
perfect competition.

7, External economies of scale can occur when

there is a decrease in specialized workers.
knowledge of production technology spreads through direct contacts.
firms seek out consultants for technical knowledge.
an industry's firms become more dispersed.

8, Internal economies of scale provide the incentive for countries to

specialize in products that are in demand abroad.
manufacture a wider range of products.
manufacture only a few units of products that are in demand.
specialize in a few products.

9, Assume the cost of transporting autos from Japan to Canada exceeds

the pre-trade price difference for autos between Japan and Canada. Trade
in autos is
moderately profitable, but only for the smallest firms
possible ,but only with sufficiently high taxes.
impossible without subsidies of some form
highly profitable, but only for the largest firms.

10, Pollution legislation requiring domestic manufacturers to install pollution

abatement equipment tends to promote
higher production costs and an increase in output.
higher production costs and a decrease in output.
lower production costs and an increase in output.
lower production costs and a decrease in output.
QUIZ 4
A small nation places a tariff of $1000.00 on automobiles. If 40 autos are imported, the
government collects $40,000 in duties. This is a calculation of the
redistributive effect.
protective effect.
revenue effect.
consumption effect.

Which of the following is a fixed percentage of the value of an imported product as it

enters the country?
specific tariff
ad valorem tariff
nominal tariff
effective tariff

Assume that the United States imports automobiles from South Korea at a price of
$20,000 per vehicle and that these vehicles are subject to an import tariff of 20 percent.
Also assume that U.S. components are used in the vehicles assembled by South Korea
and that these components have a value of $10,000.

In the absence of the Offshore Assembly Provision (OAP) of U.S. tariff policy, the price
of an imported vehicle to the U.S. consumer after the tariff has been levied is
$22,000.
$23,000.
$24,000.
$25,000.

Assume that the United States imports automobiles from South Korea at a price of
$20,000 per vehicle and that these vehicles are subject to an import tariff of 20 percent.
Also assume that U.S. components are used in the vehicles assembled by South Korea
and that these components have a value of $10,000. Under the Offshore Assembly
Provision of U.S. tariff policy, the price of an imported vehicle to the U.S. consumer after
the tariff has been levied is
$22,000.
$23,000.
$24,000.
$25,000.

Suppose that the production of a $30,000 automobile in Canada requires $10,000 worth
of steel. The Canadian nominal tariff rates for importing these goods are 25 percent for
automobiles and 10 percent for steel. Given this information, the effective rate of
protection for the Canadian automobile industry is approximately
48 percent.
15 percent.
67 percent.
33 percent.

Suppose that the United States eliminates its tariff on steel imports, permitting foreign-
produced steel to enter the U.S. market. Steel prices to U.S. consumers would be
expected to
increase, and the foreign demand for U.S. exports would increase.
decrease, and the foreign demand for U.S. exports would increase.
increase, and the foreign demand for U.S. exports would decrease.
decrease, and the foreign demand for U.S. exports would decrease.

The price of a bag of chips is $1, but a customer is willing to pay up to $3. What would
be the consumer surplus on this purchase?
$3
$1
$2
$4

When a nation imports materials and other inputs for production duty free, its tariff policy
generally results in
an effective tariff rate less than the nominal tariff rate.
a nominal tariff rate less than the effective tariff rate.
a rise in both nominal and effective tariff rates.
a fall in both nominal and effective tariff rates.

Which of the following is NOT a rationale for tariffs?

They improve the terms of trade for small and large nations.
They protect jobs and reduce unemployment.
They promote growth and development of young industries.
They promote a level playing field in terms of trade.

An optimum tariff benefits

the importing nation.
exporting nations.
the world economy.
smaller nations.

A tax of 20 cents per unit of imported cheese would be an example of a(n)

compound tariff.
effective tariff.
ad valorem tariff.
specific tariff.

The primary benefit of tariff protection goes to

domestic consumers of the good produced.
domestic producers of the good produced.
foreign producers of the good produced.
foreign consumers of the good produced.

The redistributive effect of an import tariff is the transfer of income from the domestic
producers to domestic buyers of the good.
buyers to domestic producers of the good.
buyers to the domestic government.
government to the domestic buyers

QUIZ 5
A producer successfully practicing international dumping would charge
a relatively higher price in the more inelastic market.
a relatively higher price in the more elastic market.
the same price in all markets, regardless of their elasticities.
different prices in all markets, regardless of their elasticities.

In certain industries, Japanese employers do not lay off workers. Therefore, they
sometimes have excess supplies of goods that they cannot sell on the home market
without lowering prices. To hold down losses, they sell goods in overseas markets at
prices well beneath those in Japan. This practice is best referred to as
orderly marketing.
trigger pricing.
domestic content pricing.
dumping.

Domestic content legislation applied to autos would tend to

support wage levels of American autoworkers.
lower auto prices for American autoworkers.
encourage American automakers to locate production overseas.
increase profits of American auto companies.

A firm that faces problems of falling sales and excess productive capacity might resort
to international dumping if it
can charge higher prices in markets that are elastic to price changes.
earns revenues on foreign sales that at least cover variable costs.
can sell at that price where domestic and foreign demand elasticities equate.
is able to force foreign prices below marginal production costs.

Because export subsidies tend to result in domestic exporters charging lower prices on
their goods sold overseas, the home country's
export revenues will decrease.
export revenues will rise.
terms of trade will worsen.
terms of trade will improve.

A voluntary export restraint agreement

typically applies only to the world's most important exporting nation(s).
typically applies only to the world's least important exporting nation (s).
is always more restrictive on trade than a tariff or import quota.
allows producers with superior products to participate in market.

To maintain that South Koreans are dumping their VCRs in the United States is to
maintain that
Koreans are selling VCRs in the United States below their production cost.
Koreans are selling VCRs in the United States above their production cost.
the cost of manufacturing VCRs in Korea is lower in Korea than in the United States because
wages are lower in Korea.
the cost of manufacturing VCRs in Korea is higher in Korea than in the United States because
wages are higher in Korea

Antidumping law has been called unfair for all of the following reasons, except
it does not reflect currency fluctuations.
it is based on average variable cost.
it is based on average total cost.
U.S. firms selling at home are not subject to the same rules.

If import licenses are auctioned off to domestic importers in a competitive market, their
scarcity value (revenue effect) accrues to
foreign corporations.
foreign workers.
domestic corporations.
the domestic government.

Which of the following refers to a market-sharing pact negotiated by trading partners to

moderate the intensity of international competition?
local content requirements
orderly marketing agreement
trigger price mechanism
import quota
The imposition of a domestic content requirement by the United States would cause
consumer surplus for Americans to
rise.
fall.
remain unchanged.
impose downward pressure on wages of workers.

Which trade restriction stipulates the percentage of a product's total value that must be
produced domestically in order for that product to be sold domestically
import quota
orderly marketing agreement
local content requirement
government procurement policy

The imposition of a tariff on imported steel for the home country results in
improving terms of trade and rising volume of trade.
higher steel prices and falling steel consumption.
lower profits for domestic steel companies.
higher unemployment for domestic steel workers.

Import quotas tend to lead to all of the following, except

domestic producers of the imported good being harmed.
domestic consumers of the imported good being harmed.
prices increasing in the importing country.
prices falling in the exporting country.

Government subsidies may take the form of all of these, except

cash disbursements.
tax breaks.
bank credits.
insurance arrangements.